The FCA has issued a Portfolio Letter to mortgage intermediaries setting out its expectations for mitigating identified risks to customers.
While this letter was issued to firms identified as being under the “mortgage intermediary portfolio” business model it has been published so that all firms working as mortgage intermediaries, such as general IFAs, can have access to, and act upon, it.
In 2016 the FCA’s Mortgage Market Study identified three potential areas of harm being:
- “Rules and guidance may be a barrier to developing tools that help consumers choose a mortgage;
- Consumers looking to buy an execution-only mortgage (i.e. without advice) are diverted to advice and execution-only sales channels are not always easy to use;
- Many consumers are overpaying for their mortgages, even when they get advice.”
You can refresh your memory of this here.
The FCA has identified, as part of its more recent supervisory work, the following key drivers of harm:
- “Firms advise their customers to purchase an unsuitable product which does not meet their needs. Firms should be able to clearly demonstrate why their customers have been advised to take a product. The customer should also understand the reason for the recommendation.
- Customers potentially pay excessive fees and charges for the service they are provided. There is also a risk that customers are unclear about the fees they are paying and the implications when they are added to the loan.
- The risk of fraud, both in terms of firms having inadequate systems and controls and risk management frameworks (leading to them being used to facilitate financial crime), and firms not being fully aware of the threats of cyber-attacks (leading to consumer data being compromised).”
They are prioritising supervisory work on Second Charge and Lifetime Mortgages.
Firms that are active in either or both of these markets need to read the letter.
In the letter they also cover mortgage fraud, cyber risks, governance and oversight (particularly resourcing) as well as including a Brexit signpost and a reminder of the SMCR changes.
The key message is that firms in this market should review their business and make appropriate changes to reduce harm.